Key To Ericsson's Success: Not Taking On The iPhone, Focusing On China And Mobile Infrastructure

The world is swiftly adapting to mobile internet solutions, and in industrialized nations the era of dumbphones and 2G tech is all but over. This represents a huge opportunity for Swedish firm Ericsson, because though you may not know it, Ericsson's technology underpins much of the hardware that makes cell phone networks actually work.

After a very strong showing for the quarter, the company expects to sell some $41.3 billion in wireless infrastructure gear around the world this year, and Gartner expects this figure to hit $48 billion by 2015. Ericsson is big, much bigger than its partnership with Sony would suggest. Both before and since the company's decision about 10 years ago to partner with Sony to make cell phones—a move that saw both firms shutting their own production efforts in favor of joint designs—the company has concentrated less on the consumer space and more on making money from the behind-the-scenes tech that makes the phones connect to the voice network, and mobile Net. They have innovated and earned money where others have left a gap in the market—around the whole world, not just industrialized nations.

CEO Hans Vestberg spoke to Fast Company about Ericsson's future in the global communications game this week.

With China currently being feted as Apple's biggest opportunity for growth, Vestberg noted that Ericsson had in one form or another been operating in China for over a Century: "We came to China in 1892, we've been there a long, long time and we're definitely the biggest international vendor in China—we have a high market share", he said.

In particular being the "biggest" 3G tech supplier to China Mobile, and the "second biggest" for China Unicom, Ericsson serves both the world's largest cell phone provider, and the world's third biggest. With China's middle classes embracing mobile technology (and loving the iPhone, it seems) Vestberg sees the head-to-head competition with Apple on the phone front as immaterial, and beneficial.

"With more smartphones on the market, there are more users of the network," he said. Even if the iPhone becomes as popular in China as it is in the West, that could represent increased demand for Ericsson's infrastructure and services. On the other hand, Vestberg sees Apple as competition for Sony-Ericsson, but is confident their offerings are in squarely different market segments with the iPhone at the high-end, and SE on the "high-end of the mid smartphone range." He suggests, "We can probably live with each other."

While Ericsson's role in the developed world revolves around infrastructure overhaul, in the U.S., and in Europe (where the company's mainly involved in network upgrades and coverage boosting today) a case-study for its future growth exists in standardizing billing systems, which have not been standardized in the telecom space, yet Vestber says.

A move toward smartphone wave-and-pay systems, billed via carrier fees rather than credit card-based systems, plays into Ericsson's plans: "We roughly have 50% of all pre-pay customers in the world [using] the Ericsson platform, and of course many of those people don't have a bank account," Vestberg pointed out. As cell phone payment systems expand in wealthy nations, parallel systems like wave-and-pay will also also gain traction in places like Africa. Vestberg notes: "There's a big social impact," because non-bank account holders will, in effect, "have a bank account," albeit a portable electronic one via their phones.

The company's map for the future is centered on the intersection between increasing use of smartphones, and the emergent internet of things. Vestberg proudly pointed out that his company is doing "a truckload of research" about how these technologies "impact society, in terms of everything from sustainable GDP growth to how much it creates net jobs." The "next twenty years is going to be what we call the network society," the CEO thinks, "where anything that benefits from being connected [to the Net] will be connected, and that'll be transformative for many, many industries."

It's also tempting to see huge promise in Ericsson's use of its patent portfolio, and an example for other telecoms and tech firms currently bickering about IP infringements in the courts. Ericsson, has one of the larger patent portfolios in the industry, but "we basically cross-license it with all players in the industry," Vestberg reports, "If you want to be a part of this industry you have a cross-license with Ericsson. If not, it's quite hard to make a phone or make infrastructure for mobility."

Quiet advances behind the scenes, reliable technology, a global services business, and a strong handle on the next revolution in mobile tech—that seems to be an inventive position in the cluttered mobile market. But Vestberg was also careful to note "For 135 years we've been around and a leader in this industry. There have been many changes, both in the competitive landscape and changes in the technology. But we cannot rely on the history to continue to be number one in the industry." Innovation, whether consumer-facing or not, is Ericsson's watchword.